FICA tax is a combination of a 6.2% social security tax and a 1.45% Medicare tax. The social security tax is assessed on wages up to $94,200; the Medicare tax is assessed on all wages. Employers and employees are both liable for FICA taxes at the rates given below.

Self-employed individuals pay a self-employment tax which is the equivalent of FICA tax. For 2006, they will pay a 12.4% OASDI tax (the old age, survivors, and disability insurance tax) on the first $94,200 of self-employment income. A 2.9% Medicare tax is imposed on all net self-employment income. Fifty percent of the self-employment tax paid is deductible.

The earnings limit for retirees under age 65 is $12,480. Social security benefits will be reduced $1 for every $2 of earnings above this limit. There is no earnings limit for individuals aged 65 and above.